Private equity and venture capital, often at the forefront of backing emerging concepts, have displayed a growing appetite for retail and leisure companies.
Data from advisor Savills show that, between January 2018 and October 2019, global investment from such investors into these segments grew by 14.5 percent to €37.2 billion.
Savills has found that e-commerce accounted for 53 percent of the total. But leisure, or the ‘experience’ sector, which includes the food and beverage market, saw the highest growth, having expanded at 34 percent annually over the past two years.
Investors have opted to reduce their exposure to retail, following a raft of closures as more shoppers move online. According to property transactions data provider Real Capital Analytics, retail real estate transaction volumes in Europe dived 51 percent to €12.6 billion during the first six months of the year.
Investors’ retreat from the sector has been followed by the departure of lenders. The 2020 Emerging Trends in Real Estate Europe report, published on 6 November by consultancy PwC and industry body the Urban Land Institute, notes that investors are confident the debt market will remain liquid for core real estate, with the exception of retail. Those surveyed believe lenders are far less willing to provide debt for shopping centres and retail parks – especially in the UK, where the sector is facing precipitous falls in both income and capital values.
Although retail remains unloved by investors and lenders, they should not overlook the parts of the sector in which private equity and venture capital funds are putting their money to work. Most property professionals agree there is a future for physical shopping destinations, but the concepts behind such properties need to modernise to stay relevant to today’s consumers. By following the capital going into emerging parts of the market, they can identify the trends that are transforming the sector – and invest accordingly.
As investment in e-commerce companies grows, big centralised logistics hubs are expected to become even bigger. A greater need for last-mile solutions is also projected, which is likely to create opportunities for investors and lenders.
However, these financiers should not forget that retail is a sector increasingly operating across both physical and online channels, and that this can accelerate retailers’ physical expansion. According to consultancy Colliers International, partnerships between traditional retailers and their online rivals are on the rise, while an increasing number of pure-play online retailers are opening their first physical stores across Europe.
Leisure associated with the retail trade is also buoyant in some European markets, as pointed out in the latest Emerging Trends Europe report. “In Portugal, retail is still going strong,” said one of the brokers who was surveyed. “This year alone, we have registered 400 new leases of units, a lot of it food and beverage which is also related to tourism.”
Beyond traditional leisure segments, Savills’ research notes that other concepts focused on health and wellbeing have gained significant traction in recent years. Investment in sustainable fashion, smart jewellery and cannabis beverage companies is also growing at pace.
The surge of capital into emerging parts of the retail and leisure market demonstrates that the sector, rather than dying, is constantly changing to meet consumers’ demands. Lenders should be aware of the risks and take a conservative approach when it comes to financing this evolving sector. But knowing where the growth is will give them a better chance of backing the right parts of the market.
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